Weekly Notes On Restaurant Industry: McDonald’s, Burger King & Dunkin’ Brands

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According to the National Restaurant Association, restaurants in the U.S. reported improved comparable sales growth in October, primarily due to decreasing gasoline prices, but witnessed disappointing performance in November. [1] According to the Black Box Intelligence, a financial performance research group for the restaurant industry, comparable store sales grew only 1.5% in November, compared to 2.8% in October. Moreover,  customer traffic declined by 1.1% in November. In addition, the rising commodity inflation keeps the restaurant operators watchful, as the price of butter is up 39% year-to-date (YTD), and the price of pork is up 22% YTD. (Ref: 1) Average menu inflation is merely 2.3%, however,  compared to wholesale food inflation of 5.3%.

Here’s a quick round up of the restaurant companies covered by Trefis.

McDonald’s

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After a disappointing third quarter, McDonald’s Corporation (NYSE:MCD) recently released its November comparable store sales report, where the company reported a 2.2% year-over-year (y-o-y) decline in comparable sales. [2] Stiff competition in the U.S. quick service restaurant (QSR) segment led to 4.6% decline in comparable sales in the region, whereas the declining customer traffic in the Asian markets led to a 4% decline in the Asia/Pacific, Middle East, and Africa (APMEA) region. The company is still concerned about its temporary store closures in Russia, where the country’s food safety agency shut down several McDonald’s restaurants in Moscow and the Southern Stavropol region on claims of alleged sanitary violations in August.

McDonald’s stock fell sharply from $96 to $90 last week, after the company released its November comparable sales figures. Our price estimate for the company’s stock is $96 (market cap of $94 billion) which is roughly 5% above the current market price.

See Our Complete Analysis For McDonald’s Corporation

Burger King

Burger King (NYSE: BKW) opened its first store in India on November 9 and plans to open a total of 12 outlets in Delhi and Mumbai over the next 60-90 days, as a part of an accelerated international expansion. [3] Moreover, the company plans to expand its presence and reach in Italy, Poland, Greece, and Romania, as it announced it will  enter into joint ventures for the expansion of Burger King Restaurant in Southern and Eastern Europe. [4] This might help Burger King in improving its revenue growth, and eventually staying strong amidst tough competition.

Burger King’s stock dropped from $35 to $32 before rising sharply back to $36 during the last week. Our price estimate for the company’s stock is $31 (market cap of $11 billion), which is roughly 15% below the current market price.

See full analysis for Burger King

Dunkin’ Brands

Dunkin’ Brands released mixed results in its third-quarter earnings report, as its Dunkin’ Donuts U.S. segment increased just 2%, and that of Baskin-Robbins U.S. grew by 5.8%. [5] On the other hand, the company’s priority remains the expansion of the Dunkin’ Donuts brand in the Western markets, with a primary focus on the California region. In the last week of November, the company announced that it signed multi-store development agreements with 5 franchise groups to open a total of 63 new outlets in the greater San Francisco Bay Area, Palm Springs, and Bakersfield over the next few years. [6]

Dunkin’ Brands’ stock dropped from $48 to $46 during the last week. Our price estimate for the company’s stock is $48 (market cap of $5.2 billion), which is  close to the current market price (market cap of $5 billion).

See full analysis for Dunkin’ Brands

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Notes:
  1. Restaurant industry update, November 2014 []
  2. McDonald’s reports global comparable sales for November []
  3. Burger King Worldwide enters 100th country with opening of first restaurant in India []
  4. Burger King Worldwide enters joint venture to grow brand in Italy, Poland, Greece and Romania []
  5. Dunkin’ Brands: Q3 2014 earnings conference call []
  6. Dunkin’ Donuts announces plans for 63 new restaurants in California []